A new scheme giving 3.5 million people a government-backed bonus on their savings may risk becoming a new mis-selling scandal, the former Pensions Minister has suggested.

Steve Webb has fired a warning over the Help to Save initiative for those on low incomes announced by Prime Minister David Cameron.

The move comes after research showing that almost half of UK adults have less than £500 set aside for emergencies.

Anyone in work and in receipt of Universal Credit or Working Tax Credits will be able to save up to £50 a month and receive a 50% bonus after 2 years – worth up to £600.

But ex-Liberal Democrat MP Mr Webb signalled a cautionary note, saying it could be the wrong choice for low-paid workers compared with saving through a workplace pension.

Account holders on the new scheme can choose to continue saving with for a further 2 years after the initial two years and receive another £600 bonus.

This could end with them earning a savings pot worth up to £3,600 after the full 4 years of the scheme – with £1,200 coming from the government.

Mr Webb, now Royal London’s director of policy, pointed out that with a contribution to a pension, savers may get a matching contribution from their employer, often on a pound-for-pound basis - compared with the 50p per pound top-up under the government scheme after two years.

While it is true that pension savings are ‘locked up’ in contrast to Help to Save cash, which will be accessible, he said, older workers can access their capital from the age of 55. He questioned whether Help to Save would be the best option for them.

Mr Webb said: “It is welcome that the Government is looking to encourage people to save, but it needs to be careful that people are not incentivised to make the wrong choice with their money. Money put into a pension often attracts a matching contribution from an employer plus a tax relief contribution from the government and can entitle you to higher tax credits.

“While both short-term and long-term savings are important, low-paid workers with spare cash should think very carefully before assuming that the ‘help to save’ scheme is the best deal for their money. It would be unfortunate if this initiative turned into a new mis-selling scandal, with workers discovering they could have got a better deal from a pension”.

Mr Cameron said: “I’ve made it the mission of this government to transform life chances across the country. That means giving hard-working people the extra support they need to fulfil their potential.

“And that’s what these new measures will achieve – helping someone start a savings fund to get them through difficult times, giving people on low incomes a pay rise and making sure teenagers have the experience and networks to succeed.”

Chancellor George Osborne said: “This government is determined to improve the life chances of the poorest in our society and our new Help to Save scheme will mean millions of low income savers across the country could now receive a government bonus of up to £1,200 to help them build up their savings.”